Is Buy to Let dead?

Zola.

For the average Joe who looks to acquire another house for letting out, is buy to let a bad investment now?

I remember hearing the government tax landlords very heavily now, making it much harder to make a profit.

MyOnlyPost

It depends largely on your personal circumstances. If you are in the 40% tax bracket then it is definitely not as attractive as it was. If you are in the 20% bracket and your rental income won't lift you into the 40% bracket then not much has changed really.

You do now have to pay 3% extra stamp duty on purchase but as this is a cost of buying it should be offset on CGT when selling

ThinkingOutLoud_2

Zola. wrote: »

For the average Joe who looks to acquire another house

He is not an average Joe - the average Joe struggles to buy or pay for his/her first home.

Perhaps, all the changes have made it less easy to make a mint than before. Can't help thinking this will put off some more fair-minded and benevolent prospective landlords and encourage the hard-nosed ones to be harder of nose.

kilby_007

MyOnlyPost wrote: »

It depends largely on your personal circumstances. If you are in the 40% tax bracket then it is definitely not as attractive as it was. If you are in the 20% bracket and your rental income won't lift you into the 40% bracket then not much has changed really.

You do now have to pay 3% extra stamp duty on purchase but as this is a cost of buying it should be offset on CGT when selling

Am I right in thinking you won't be able to offset mortgage interest against your profit now too? That'll hit all landlords pretty hard.

I only have to look at the dozens of rightmove listings in my area over the last few days and over 50% of the properties listed are "No Chain" or "investment opportunities" (offloading of buy to let).

ThinkingOutLoud_2

kilby_007 wrote: »

Am I right in thinking you won't be able to offset mortgage interest against your profit now too? That'll hit all landlords pretty hard.

As per the above post the impact is dependant your income / mortgage size and other costs - the government have made up some examples which show it won't affect everyone. Plus there is a staggered implementation.

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

booksurr

kilby_007 wrote: »

Am I right in thinking you won't be able to offset mortgage interest against your profit now too?

you have probably misunderstood. You claim tax relief at 20% on the mortgage interest cost. Therefore a basic rate taxpayer is totally unaffected by the change as it is exactly the same end result as before. However, the maths of the calculation do mean that some people can be pushed into the higher rate bracket who were not in it before.

for a higher rate taxpayer yes, they will pay more tax, since the interest gets relief at 20%, not 40%

da_rule

With the new rules then, is there a possible situation where someone could end up more in tax and mortgage payments than the amount of money they've received that year as rent?

Assuming they are charging enough rent to cover the mortgage payments.

anselld

MyOnlyPost wrote: »

You do now have to pay 3% extra stamp duty on purchase but as this is a cost of buying it should be offset on CGT when selling

You make it sound like all of the extra SDLT will be recovered when selling. It will not.

AnotherJoe

There are two different questions you asked, and an assumption.
Is buy to let dead is your headline, and is it a bad investment is your first question, so you appear to be assuming that if the answer to the latter is "yes" then yep BTL is dead.

But there are plenty of posts here that indicate that many get into it without even asking if its a bad investment. They just assume its a route to riches.

So I'd say that yes it can be a bad investment, but no its not dead, especially for the Average Joe who thinks its still (if it ever was) an easy route to riches and likely isn't aware of most of the basic pitfalls like SDLT and tax changes let alone the detail.

caronoel

booksurr wrote: »

you have probably misunderstood. You claim tax relief at 20% on the mortgage interest cost. Therefore a basic rate taxpayer is totally unaffected by the change as it is exactly the same end result as before. However, the maths of the calculation do mean that some people can be pushed into the higher rate bracket who were not in it before.

for a higher rate taxpayer yes, they will pay more tax, since the interest gets relief at 20%, not 40%

The point about mortgage interest is key.

My LTV on my BTL portfolio is about 15% currently and will go to nil within 5 years so the effect on low leveraged LLs is almost nil.

Rents are forecasted to rise dramatically over the next few years:
https://www.theguardian.com/business/2017/feb/09/uk-rents-rise-faster-house-prices-next-five-years-rics-survey

Irrespective of your marginal tax rate (I am on 45%), BTL still makes sense if you've got a sufficiently large deposit and can identify a property with yield of at least 5%

Cakeguts

Depends if you need a mortgage or not to buy the properties. If you don't have mortgages on any of the properties nothing changes.